Physician-Owned Distributorships under attack — 5 things to know

The United States filed two complaints under the False Claims Act related to physician-owned distributorships.

The complaints are filed against Aria Sabit, MD, a Michigan-based neurosurgeon; spinal implant company Reliance Medical Systems; two Reliance distributorships; and the companies' owners Brett Berry, John Hoffman and Adam Pike. The complaints allege the two distributorships — Apex Medical and Kronos Spinal — paid physicians to induce them to use Reliance spinal implants in surgeries they performed.

"Improper payments to physicians can alter a physician's judgment about patients' true healthcare needs and drive up healthcare costs for everyone," said Assistant Attorney General Stuart F. Delery for the Justice Department's Civil Division. "The Justice Department is committed to enforcing the laws that prohibit such payments."

Founded in 2006, Reliance has more than 12 physician-owned distributorships selling Reliance devices and each distributorship sold implants to physician owners for use in surgeries they performed. Here are five things to know about the claims:

1. Cary Savitch, MD, and Gary Proffett, MD, raised the allegations against Dr. Sabit in a separate lawsuit filed under the qui tam provisions of the False Claims Act. These provisions allow private citizens with knowledge of fraud to bring civil actions on behalf of the government and share in the recovery. The government can also decide to intervene in the whistleblowers' lawsuit, which the government did in this case.

2. The government decided to file a separate lawsuit as well containing kickback claims against Dr. Sabit and Reliance. The suit alleges Apex Medical funneled improper payments to Dr. Sabit for using Reliance implants, paying Dr. Sabit $438,570 over a two-year period in which Dr. Sabit performed around 90 percent of his spinal fusion surgeries using Reliance implants.

3. The lawsuit also alleges the payments induced Dr. Sabit to perform unnecessary or excessive surgeries on patients who did not need spinal implants. Dr. Sabit didn't use Reliance implants until after became an owner of Apex and began receiving payments from Reliance.

4. The government also alleges Kronos made improper payments to two physicians in California: Ali Mesiwala, MD, and Gowriharan Thaiyananthan, MD. Reliance owners reportedly told potential investors that Reliance was formed to "get around" the federal Anti-Kickback Statute and that Reliance's payments in the first month or two were enough to "put their kids through college."

5. Physician-owned distributorships have been under attack over the past few years. While POD proponents maintain they can generate cost savings, an October 2013 report from the HHS Office of the Inspector General reported POD devices were not cheaper than devices from other companies and costs were higher for spinal plates. The report also found surgeons at hospitals purchasing from PODs performed 29 percent more surgeries than hospitals that didn't purchase from PODs and 94 percent of hospitals noted surgeon preference influenced their decision to purchase from PODs. Regular spinal fusions at hospitals using PODs grew 21 percent over the one-year period examined, compared with 9 percent for all hospitals. (Spine Devices Supplied by Physician-Owned Distributors: Overview of Prevalence and Use, Reported by Daniel Levinson, OIG DHHS—10 Key Points and Observations).

The OIG issued a special fraud alert in March 2013 addressing PODs and specific attributes it believes produce fraud and abuse risk. "Longstanding OIG guidance makes clear that the opportunity for a referring physician to earn a profit, including through an investment in an entity for which he or she generates business, could constitute illegal remuneration under the anti-kickback statute," states the report. "The anti-kickback statute is violated even if one purpose of the remuneration is to induce such referrals."

A 2011 Congressional report on physician-owned distributorships also found, "The very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain."

A POD and buyer — such as a hospital or ASC — should be able to demonstrate at a minimum that the POD provides a real cost-savings for the facility and does not include explicit or implicit requirement to purchase from the POD in exchange for the surgeons' cases (5 Thoughts on Physician-Owned Distributorships). Ideally, the physician would not refer Medicare or Medicare business to the facility and the POD would be a true distributorship engaged with providers beyond those to which the physician refers, so it's a business not just based on the physician's referrals.


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